Private Credit News Weekly Issue #83: Redemptions Surge 200%, Blue Owl Breaks Gates, and UK Warns of "Unknown Unknowns"

Investors yank $2.9 billion from non-traded BDCs in Q4 while Blue Owl allows 17% redemptions as managers insist "performance remains strong"

Jan 10, 2026

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Investors are rushing for the exits. Redemption requests from non-traded BDCs holding more than $1 billion asked to pull a total of more than $2.9 billion in the fourth quarter, up 200% from the prior period, according to Robert A Stanger & Co. Historically, redemptions hover at 2% of a fund’s net assets. They’re now running at 5% across the industry.

Blackstone’s BCRED, the biggest vehicle in the space, saw investors request approximately $2.1 billion in withdrawals, worth about 4.5% of net assets. Ares’ non-traded BDC redemption requests reached more than 5% of net assets, with one large withdrawal made before September contributing to the surge.

Then Blue Owl shattered precedent. The firm allowed investors in Blue Owl Technology Income Corp. to withdraw as much as 17% of net assets, worth approximately $685 million, well in excess of the 5% quarterly limit. The firm also extended the redemption deadline to January 8 from December 31.

“Typically when funds are faced with redemptions above 5% they will pro-rate, but we’ve prioritized the investor here because we have the flexibility with $2.4 billion of liquidity,” said Blue Owl co-founder Craig Packer. The steep redemptions came from wealthy individuals in Asia, which constitute a significant portion of OTIC’s investor base.

Representatives for the three firms emphasized strong performance. Ares’ ASIF vehicle has delivered 11% annualized total return through November 30 for Class I shares since inception. Blue Owl said OTIC’s performance “remains strong with roughly 11% returns” for Class I shares since inception. Blackstone noted BCRED delivered 10% annualized total return since creation with “strong, positive” net flows for the quarter.

But net assets sitting in private BDCs have declined over the past five quarters, with those in funds managing more than $750 million dropping 0.4% in Q3, according to Raymond James. Goldman Sachs analysts expect redemption requests to remain elevated in Q1 but calm down by mid-year. If redemptions continue at around 5%, non-traded BDCs would report approximately $45 billion of net outflows annually.

Meanwhile, UK lawmakers delivered a scathing assessment. A House of Lords committee criticized the Treasury for its “limited grasp” of risks related to private capital markets and said the Bank of England needs to move faster on stress testing. “HM Treasury’s evidence demonstrated a limited grasp of the concerns raised during this inquiry, which suggested passivity in the face of potential risks to the UK’s financial stability,” the committee wrote.

“One is hoping very much that Jamie Dimon’s cockroaches don’t come this side of the Atlantic,” said Lord Hollick, a committee member. “It’s all part of the same market internationally with the same players. So this needs to be high on the agenda for both the regulators and the Treasury.”

On the fundraising front, KKR closed its second Asia-focused credit fund with $2.5 billion in total investments including $700 million from separately managed accounts. Monroe Capital amassed $6.1 billion for its newest lower middle-market strategy, 27% more than its previous $4.8 billion pool. Davidson Kempner closed its second asset-backed fund with over $1.1 billion in fresh capital, up from $750 million for the predecessor.

Apollo President Jim Zelter said “the gauntlet for approving investments at the firm has gotten higher and higher over the last year or so amid rising tail risk from geopolitics.” He noted planned US layoffs topped 1.2 million last year, the most since 2020, though data suggests the US economy has become more resilient since the financial crisis.

Key Market Themes

1. Redemption Wave Hits 200% Surge as Sentiment Sours

Investors in BDCs holding more than $1 billion asked to pull a total of more than $2.9 billion in Q4, up 200% from the prior period. Historically, redemptions hover at 2% of a fund’s net assets, according to Goldman Sachs. They’re now running at 5% across the industry.

Blackstone’s BCRED saw investors request approximately $2.1 billion, worth about 4.5% of net assets. Ares’ non-traded BDC redemption requests reached more than 5% of net assets. One large withdrawal request made before September contributed to the surge, Goldman Sachs analysts noted.

“The current environment represents one of the first real tests for the largely non-institutional client base of many of these funds since Covid,” said Alfonso Rodriguez, associate director of alternative investment research at EP Wealth.

The Math

If redemptions continue at around 5%, non-traded BDCs would report about $45 billion of net outflows annually. However, managers are expected to handle redemptions even at that rate long-term, given they hold $500 billion of total available capital, according to Goldman Sachs. Redemption requests are expected to remain elevated across non-traded BDCs in Q1 but calm down by mid-year.

2. Blue Owl Breaks Precedent with 17% Redemptions

Blue Owl allowed investors in OTIC to withdraw as much as 17% of net assets, worth approximately $685 million, well in excess of the 5% quarterly limit. The firm also amended the deadline for investors to redeem shares to January 8 from December 31.

“Typically when funds are faced with redemptions above 5% they will pro-rate, but we’ve prioritized the investor here because we have the flexibility with $2.4 billion of liquidity,” Craig Packer said. The steep redemptions were due to withdrawal requests from wealthy individuals in Asia, which constitute a significant portion of OTIC’s investor base.

OTIC’s $2.4 billion of available liquidity includes $1.2 billion of liquid loans, Packer added. The fund has honored all tender requests its investors have ever made. Blue Owl’s largest direct lending vehicle, Blue Owl Credit Income Corp., saw investors yank out about 5% for the quarter, in line with the industry average, totaling approximately $966 million.

Historical Context

Blue Owl faced scrutiny in November after pulling a planned merger of two private credit funds that could have forced investors in the non-traded fund to swallow losses of around 20%. The non-traded vehicle, Blue Owl Capital Corp. II, had seen redemption requests above the preset 5% limit prior to the attempted merger. Blue Owl honored about $60 million, or 6%, but has since stopped allowing cash withdrawals. The manager said it would reinstate redemptions this quarter.

3. UK Lawmakers Warn of “Unknown Unknowns” and Treasury Passivity

A House of Lords Financial Services Regulation Committee criticized the Treasury for its “limited grasp” of risks related to private capital markets and said the Bank of England needs to move faster on stress testing. The committee titled its report “Private markets: Unknown unknowns.”

“HM Treasury’s evidence demonstrated a limited grasp of the concerns raised during this inquiry, which suggested passivity in the face of potential risks to the UK’s financial stability arising from the growth of private markets,” the committee wrote. The Treasury’s attitude was “Well, these matters are being dealt with by the regulator,” said Lord Hollick.

The inquiry said it didn’t have sufficient evidence to determine whether private markets represent a systemic risk, but rapid growth and interconnectedness with banks and insurers are concerns. “One is hoping very much that Jamie Dimon’s cockroaches don’t come this side of the Atlantic,” Hollick said.

Stress Test Timeline

Baroness Noakes called on the central bank to publish stress test results by mid-2026 instead of Q1 2027 as provisionally timetabled. “We think there would be advantages in sharing initial findings. This is an area that is rapidly growing and there are so many unanswered questions,” Noakes said. The test “could reveal that the Bank does not have sufficient powers to do what is necessary to ensure that any financial stability risks can be managed.”

4. Credit Executives See Spread Compression and Vintage Risk

Private credit executives entering 2026 see spread compression and falling rates as top concerns. According to Carlyle’s Mark Jenkins, “people have really short memories. We went through a period in 2021-2022 where we were doing unlevered first-lien loans at 12% or 13%, and it was unsustainable. Normal spreads are around that 450- to 550-basis point range, and so the industry should be inking out unlevered returns between 7.5% and 8.5%.”

Tikehau’s Mathieu Chabran said what struck him most about Tricolor and First Brands is “people were all confused on credit defaults. We’re not talking AAA-rated government bonds. We’re talking about credit underwriting, so there is some credit risk. That was a very significant misconception. Maybe because the last credit cycle goes back to the global financial crisis, which is now 17 years ago.”

Andalusian’s Aaron Kless distinguished between two private credit markets. “There are the headline-grabbers, the household-name lenders doing massive deals that are really analogous to broadly syndicated loans. That is where you see the ‘cockroach’ examples. Then there is the core middle market where we operate -- companies with $10 million to $50 million in earnings.”

Restructuring Wave

Jenkins noted “there are a lot of companies that took on outsized capital structures in a low-rate environment. Those companies represent a vintage that is never going to grow enough to catch up to their cap structure. They have to be restructured. And the only way to do that is to throw the debtholders the keys.”

5. Asset-Backed Finance Emerges as Top Asia Pick

Asset-backed finance was named the favorite alternatives pick for 2026 by Asia’s top investors in a Citywire poll of 150 leading wealth and asset management professionals. Nearly a quarter said they were finding the most attractive opportunities in ABF, followed by private equity with 19% of votes.

Davidson Kempner closed its second asset-backed private credit fund with over $1.1 billion in fresh capital exclusive of fund-level leverage. The fund will be deployed across residential, corporate, and specialty finance opportunities, with check sizes ranging from $25 million to $75 million. Investors in the predecessor fund, which had around $750 million when closed in 2021, have gotten back about what they put in with more on the way.

“We are looking to step into areas where banks have pulled back because of regulatory concerns,” said Chris Krishanthan, a Davidson Kempner partner. Deals the firm finds particularly attractive include residential projects as well as hard assets in the aviation and maritime sectors.

Market Growth

ABF offers investors an alternative to the crowded direct-lending lane as well as protections against losses because it’s generally tied to hard assets or intellectual property. Many industry participants view ABF lending as a bright spot and maintained enthusiasm even as tariff concerns arose last year.

6. Fundraising Momentum Continues Despite Market Stress

KKR closed its second Asia-focused credit fund late December, securing $2.5 billion in total investments including $700 million from separately managed accounts. The Asia Credit Opportunities Fund II is a performing credit fund designed to deploy capital into deals targeting returns in the low-to-mid-teens.

Monroe Capital amassed $6.1 billion for Monroe Capital Private Credit Fund V and related parallel funds, around 27% more investible capital than its previous $4.8 billion pool closed in 2022. The firm collected $2.8 billion for the latest fund itself along with $1.5 billion in fund-level leverage and $1.8 billion in separately managed accounts from over 90 institutional investors.

Catalio Capital Management, backed by KKR, raised more than $325 million in commitments for a private credit fund focused on life sciences, almost fourfold the $85 million it pulled in for its 2022 predecessor. The fund was oversubscribed, exceeding its initial target of $250 million.

Strategic Context

The fundraising success comes despite mounting concerns. “In some cases, these funds have raised so much capital that they don’t have enough loans to deploy it into, resulting in 20% to 40% of the portfolio being allocated to bank-syndicated loans,” EP Wealth’s Rodriguez said. “When investors are paying private-market fees for a large public-asset allocation, that becomes a problem.”

7. Apollo Raises Investment Bar Amid Geopolitical Risk

Apollo President Jim Zelter said “the gauntlet for approving investments at the firm has gotten higher and higher over the last year or so amid rising tail risk from geopolitics.” While there are “a lot of great things going on, a massive capex cycle and good economic growth and consumers in solid shape” in the US, “there’s lots of challenges between geopolitics and concerns about inflation and the return of invested capital and AI.”

Planned US layoffs topped 1.2 million last year, the most since 2020, stoking anxiety about the economy. But Zelter argued the US has been in an extended credit cycle and “it’s harder to have a real economic recession because of the diversity of funding. We have the healthiest banks on the globe and a securitization market that’s alive and well.”

On AI, Zelter said there’s a gap of $1 trillion to $1.5 trillion between hyperscalers’ capital spending needs over the next five to six years and the amount expected to be raised from equity and public debt markets. “That seems like it’s a huge number. It’s definitely going to have a strain on the IG market.”

Market Evolution

Hyperscalers will go from a negligible impact on the investment grade debt market to making up 10% to 15% of participants, Zelter said. Apollo agreed to buy a majority stake in Stream Data Centers last year as it jostles to be involved in the rollout of AI infrastructure.

8. Investment Grade Bonds Teetering on Junk Brink

Around $63 billion of US corporate bonds in the high-grade universe have a high-yield rating from one bond grader, a BBB- rating from others, and at least one negative outlook, according to JPMorgan. That figure was $37 billion at the end of 2024.

“As companies continue to refinance debt, the pressure on their balance sheets from rising interest expense is growing,” said Nathaniel Rosenbaum, a JPMorgan US high-grade credit strategist. “That, in turn, does put a little bit more ratings pressure on weaker credits.”

About $55 billion of US corporate bonds migrated from investment-grade to junk status in 2025, becoming “fallen angels.” That far exceeds last year’s $10 billion of “rising stars,” or firms elevated to high-grade. BBB- debt is just 7.7% of JPMorgan’s US high-grade corporate index, a record low share, but a relatively high amount of debt is susceptible to being cut to junk.

Credit Quality Concerns

“If you look underneath the hood there are underlying signs of weakening in credit profiles,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. Broad measures of indebtedness have been creeping higher relative to earnings, fueled by rising yields after the pandemic, spending on AI, and acquisitions.

Deals of Note

Beaufort - Adams Street Partners leads private credit financing of as much as $400M to back acquisition by Capitol Meridian Partners and Stellex Capital Management from Survitec, joined by MidCap Financial and Hamilton Lane
Uvesco - Hayfin and Strategic Value Partners agree to provide loan to fund management-led acquisition from PAI Partners
Russell Investments - Completes $1.225B strategic financing with Apollo-managed funds to support long-term growth strategy and enhance balance sheet flexibility

The Reality Check

Redemptions jumping 200% to $2.9 billion in Q4 while funds maintain 11% reported returns reveals the gap between performance and perception. Blue Owl honoring 17% redemptions above its 5% gate demonstrates the liquidity management challenge facing even well-capitalized managers as investor sentiment shifts.

Jenkins’ observation that normal spreads sit at 450-550 bps with returns at 7.5-8.5% reflects the recalibration underway. The 11% returns many funds advertise include leverage, which magnifies both upside and downside. As base rates fall and spreads compress, maintaining double-digit returns requires either increased leverage or moving down the quality spectrum.

The UK Lords committee requesting accelerated stress test results signals regulators treating private markets as systemically important. Whether interconnection with banks and insurers creates stability through diversification or fragility through contagion remains the central question. Monroe’s $6.1 billion raise and KKR’s $2.5 billion Asia close show institutional capital still backs the asset class, but allocation patterns are shifting toward ABF and secondaries where collateral and price discovery provide clearer risk-adjusted frameworks.

JPMorgan’s data showing $63 billion of bonds near downgrade from $37 billion at year-end reflects broader credit cycle dynamics. As $55 billion of fallen angels versus $10 billion of rising stars in 2025 demonstrates, corporate credit quality is under pressure across public and private markets. Private credit doesn’t create these stresses. It finances through them.